If you follow the valuations of companies like Facebook, Twitter, or Groupon- you will see their valuations go from about $10B to $100B. Lets take Facebook in this example; their estimated 2010 earnings were about $2 Billion. Now take that $100B valuation and then look at the earnings multiple. 50x? That’s high.

So for a minute lets say that is ok. Now lets take Google. Its market cap is currently about $190B. It made about $30B in 2010. So 30B in rev x 50 earnings multiple=not 190. Call me elementary, but Google should be worth $1.5 trillion if we are looking and speculating for the future, like investors are for Facebook.

Now forget about valuations for a minute. Even if Facebook was worth $100B hoping to bring in even $20-30B a year- it will have a downfall before it gets to that point unless it does something crazy and starts charging everyone to use the service- which it won’t.

Investors who invested in Facebook at the $100B valuation are going to be wiped off the table in the next 5 years maximum. Ok, maybe not the investors who put their money in at $100B, but the ones that put it in at $150B- or whenever the musical chairs stop.

I’d probably say Groupon is the most justified valuation out of the three mentioned above; if the can sustain their growth.

What does this mean for the startup today?

It’s a good opportunity to raise money, and start something worthy. When the bubble bursts, surely there will be another 2000-era where investors will lock their doors and hibernate. By no means should startups be scared. Even if the bubble bursts, there will be the smart investors who will have funded bubble-companies at a non-bubble stage, and most likely have cashed out.

The worst thing that will happen is the “bad”-(unlucky) investors will be cleared out, kind of how bad debt is being written off in today’s economy, but if your service is blossoming with consumers- it will start all over again.

Bubble 3.0 anyone? Are investors to blame?